Cooperative Banking in India

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Indian planners considered co-operation as an instrument of economic development of the disadvantaged, particularly in the rural areas. They saw a village panchayat, a village co-operative and a village school, as the trinity of institutions on which a self-reliant and just economic and social order was to be built. The non-explorative character of cooperatives, voluntary nature of membership, the principle of the one man one vote, decentralized decision making and self-imposed curbs on profits as unique instruments of development combining the advantage of private ownership with public good. The Cooperative Credit movement was started in India largely with a view to providing agriculturist funds for agricultural operations at low rates of interests and protect them from the clutches of money lenders. In the below post, we shall learn about the basic features of cooperative banks and their major differences with commercial banks.

Concept and Definition of Cooperative Banks

Cooperative Organizations are voluntary associations formed on the basis of equality for a common objective. The basic principle of cooperation is "each for all and all for each".

H. Calvert defines a cooperative organization as a "form of organization wherein persons voluntarily associate as human beings on the basis of equality for the promotion of their economic interest". Cooperative banks are cooperative societies established for the purpose of providing credit to its members. In other countries cooperative organizations are based on peoples participation. Whereas in India, they have been initiated and supported by the government. Majority of cooperative banks were established in rural areas and hence identified with the rural sector. These banks were setup with the specific objective of financing the farmers and other needy persons.

Features of Co-Operative Societies

Cooperative societies have distinct features, whether they are consumer, credit housing or marketing cooperative sector. These features are present in cooperative banks also. They are

1. Cooperative societies are essentially voluntary associations. There is free entry into a cooperative society. All eligible persons can become members of the society. The cooperative society does not discriminate persons on the grounds of their caste, creed, color, class, religion or status. 
2. A person becomes member by acquiring shares in a cooperative society. The society operates on the principle of one man one vote. Regardless of the number of shares held by a member of a society he casts only one vote. 
3. Profit making is not the main motto of cooperative societies. They exist primarily for the purpose of providing service to their members. 
4. Management of cooperative societies is vested with 'Directors' who are elected by the members through their voting rights. Directors collectively constitute 'Board of Management'. Members of the society meet every year in the annual general meeting and decide on various important issues of the society. 
5. A part of the profits / surplus earned by the society are distributed in the form of dividends to the member of the society. Remaining surplus is used to promote the welfare of the society. 
6. Cooperative societies are regulated through the cooperative societies Act. Through the registrar of cooperative societies the government closely monitors the functioning of the co-operative societies. Rules and regulations are framed to safeguard the interests of the members. 

Differences between Cooperative Banks and Commercial Banks

Both the commercial bans and cooperative banks are basically financial institutions. Although there are some common features between the two they are fundamentally different in certain respects. These differences are presented as under.

Cooperative Banks	Commercial Banks
Cooperative Banks are Co-operative Societies governed by the Co-operative societies Act, 1904.	Commercial banks are joint stock companies they are governed by the Banking Regulation Act, 1949.
Cooperative Banks generally provide short, medium and long term finance to agriculture and allied sectors.	Commercial banks generally provide short, medium and long term finance, to trade, commerce and industry.
Cooperative Banks lend finance to their members only i.e., share holders borrow from a co-operative bank.	Commercial banks lend to anyone who is willing to borrow and satisfies the conditions of the bank.
Cooperative Banks operate on a relatively small scale.	Their operations are on a large scale.
Scope of activities of a co-operate bank is limited to providing different types of loans to their members.	Commercial banks offers a wide range of financial assistance and financial services.
Cooperative banks operate as federal structure in India	Commercial banks have the structure of a joint stock company.
Co-operative Banks are subject to the supervision of the state governments, NABARD and the RBI.	Commercial Banks come directly under the supervision of the Reserve Bank of India.

That's all for now friends. In our next post we shall discuss about the detailed Structure of Cooperative Banks. Happy Reading :)

Read complete Banking Awareness study material for RBI Grade B Exam from here

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